Credit card withdrawal charges soar

Friday 19 January 2007 00:03 BST

Credit card holders have seen cash withdrawal rates soar since new rules were introduced in 2005 - adding around £41 million in interest charges, it has been claimed.

Research by price comparison website uSwitch found that the average APR for credit card cash advances has climbed to 27.06%, up from 20.83% before reforms were brought in by the Department of Trade and Industry aimed at making it easier for consumers to compare products.

The changes - introduced in May 2005 - restricted the use of APRs in advertising to main purchase rates, but uSwitch said an unforeseen consequence has been large hikes in the rate banks charge credit card holders for withdrawing cash.

In less than two years, these rates have increased by 30% - equating to rise of 6 percentage points on a typical APR - with some card issuers charging an APR equivalent in excess of 31%.

A poll from uSwitch found that almost three quarters of adults fail to understand what charges will be incurred from ATM withdrawals, with 15% of people who have taken money out with a credit card believing that it would cost them nothing.

Nick White, director of financial services at uSwitch.com, said: "Consumers could be forgiven for thinking that they are being treated as the banking industry's personal ATM.

"It is easy to see why the major banks continue to announce record profits, which this year totalled in excess of £40 billion, when the welfare of their customers continues to take a backseat to shareholder profits."

Figures from uSwitch show that there were 47 million cash withdrawal transactions on credit cards in the last year, amounting to £5.37 billion.

An average annual cash withdrawal of £809 now costs consumers at least £29.18 in interest, compared to £22.97 prior to the changes being introduced.

Mr White added: "With some providers now charging up to the APR equivalent of 31.23% on cash withdrawals, which is higher than the average sub-prime credit card of 30.9% APR, cash rates have become sub-prime rates masquerading as mainstream lending. We now challenge the Office of Fair Trading to investigate whether these rates amount to 'usury' or extortionate lending."